Win Over Your Customers with Online Payments

Nearly 50% of U.S. small businesses send at least five invoices a day and still, somehow, unpaid receivables remain a chronic disease for small businesses.

            A survey by Aite Group revealed that over 50% of small businesses (or 1 in every 2 businesses) struggle with unpaid receivables. That survey was taken in 2006. Just imagine what those numbers look like today given the recent financial crisis and the current unemployment rate of 9.1% in the US.

Source: Aite Group’s Small-Business Survey, April 2006

Why?

            Businesses are cash strapped and must accomplish more with fewer resources. Businesses extending credit are in need of better ways to manage their accounts receivable so they can get paid faster and therefore, increase their cash flow to start generating more jobs.

As explained in our previous blog, there are considerable reasons why customers don’t pay. If you’re extending credit to customers you should explore every avenue that will help them pay you back. Put yourself in their shoes and do what it takes to win over their heart. More simply put: make your customers love paying you back. Where does this courtship begin? Try focusing on one particular aspect of accounts receivable management: how different payment methods can affect the likeliness of getting paid by your customer. As shown in the figure below, checks remain the dominant payment method for U.S. small businesses:

Source: Aite Group’s Small-Business Survey, April 2006

What is particularly interesting is that U.S. businesses face an expanding range of payments choices as they migrate from paper to electronic payments. The check itself is experiencing a revolutionary decline in favor of electronic payments, primarily ACH and card payments, as shown in the following graph. Paper checks are being “electronified,” either through check imaging or conversion to ACH debits.

Source: Aberdeen Group, June 2008

What are the main reasons for such a trend? The chart below shows the key reasons why the usage of checks is declining:

Source: Aberdeen Group, June 2008

COST

Businesses are focused on cost. It’s that simple. A long-standing advantage of automation, the elimination of manual and paper-based processes consistently delivers more dollars to the bottom line due to increased visibility and the speed of transaction. The removal of paper from the accounts payable department is also one of the more alluring benefits. The costs to cut and send live checks as a form of payment are generally higher than that of electronic payments. Small businesses achieve higher per transaction savings by using electronic payment methods over paper-based checks. As shown below, small businesses can save 30-40% when using electronic payments vs. paper-checks.

Sour: Aberdeen Group, June 2008

Also, by using electronic payment methods, small businesses are able to accelerate their payment processing, which in turn allows them to take any early payment discounts.

SECURITY

What about fraud? Integration of payments with accounting systems is the correct action to reduce costs and mitigate the risk of payment fraud. Risk reduction and the spotlight on reducing costs go hand-in-hand. As the graph shows below, over 40% of small businesses experience fraud when using paper-based checks. On the other hand, ACH and wire transfers are the most secure form of payment methods.

Source: Aberdeen Group, June 2008

Long story short: there are various ways in which you can manage your accounts receivable. You don’t need to always chase down your customers – there are nicer ways of increasing the likeliness of getting paid. However, given that over 70% of small businesses prefer to pay online, you should consider changing the way you’re getting paid by your customers:

Source: CashEdge Small Business Survey, 2006

Ask your customers whether they would prefer to use electronic payment methods (such as ACH) because based on the available data it appears to be exactly what they want.

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